Krystal Biotech, Inc. (KRYS) Earnings Call Transcript & Summary

[Audio Gap] of the 2024 Bank of America Health Care Conference. Thanks for joining this session with Krystal Biotech. My name is Alec Stranahan. I'm Vice President and senior biotech analyst covering Krystal here at BofA. And I'm pleased to be joined by Krish Krishnan, Chairman and CEO of Krystal. Krish, thanks for being here.

Alec, thanks for having me.

Yes. Great. Great. So we'll just jump straight into the Q&A. I have a few here, but I also welcome those in the audience to ask questions throughout. And if you have questions, just raise your hand and someone will be by with a mic. So Krish, maybe just jumping straight into it on VYJUVEK. This is your drug that's been approved for almost a year, almost exactly at this point for DEB. I guess at a high level, how is the launch going? And what are some of the major trends you'd highlight from 1Q?

I'm pleased to say the launch is going really well. The patient experience on drug has been great. The physician experience has been great. And when we launched, we always thought, given that it's a chronic application, that the patient experience was vitally important to the launch and that they should be well educated and well informed before they get on drug. And so we spent a lot of time paying attention to that. Our goal when we launched was looking at the label and the attributes of the drug was to hit 60%, 65% penetration in like 2 years. And I'm pleased to report that we -- so to date, we've been tracking pretty nicely against that trajectory. Access has ended up in a really good place. We pretty much have 96%, 97% of the access, which is the payers reimbursing for the drug, whether it's on the government side or the commercial side. And the remaining percentage is maybe a payer or so who does not have a patient on drug. Compliance has been extremely good. We're north of 90%, which is a remarkable number for a chronic application compared to many drugs in the market. We hope that continues for a while. Our position has been that you should expect a high level of compliance for the first 15 months or so, after which a lot of the wounds potentially are healed and you may not need as much dose and shift to maintenance dosage, which could be different -- a lot different than the induction dose, but to date, 91% compliance has been good. We continue to get patients both from centers of excellence and in the community. And so the U.S. launch is really, in my mind, in a very stable, very good moving forward kind of stage as we march towards the -- trying to capture as much of the 1,200 patients that we would like to. And by the same token, Europe has been very good to. We're in the middle of an EMA review process. We're expecting to get approval before the end of the year, and hopefully launch first half of next year in one of the EU4 countries. Japan is progressing well. So I would say globally, we feel good about [indiscernible] is commercial in the U.S. and going through approval in the other countries.

Great. So a couple of folks to jump off of there. Maybe just circling back on the compliance point because I think this is maybe a point that was a little bit confusing for people on the 1Q call, but correct me if I'm wrong, but essentially if a patient -- so it's a weekly dosing, if a patient skips a week, that's labeled as a noncompliant event, right? Even if they skipped it because the drug is working and their wounds are closing for longer.

Yes. I mean the simplest way to think about it, like hypothetically, if a patient has been on drug for 10 weeks and missed a week, compliance -- we would calculate compliance to be 90%. So that's a very simple way to think about. For now, since compliance is so high, it's easy to calculate compliance that way. At some point in the future, say, starting next year, I think you're going to see some patients stopping treatment because the wounds are healed for a few weeks and getting back on, and then the calculation of compliance gets a little bit more complicated than simply dividing by how many weeks, how many vials. But for now, we're in this stage where like you were saying, if you miss a week out of 10 weeks, you're at 90% compliance. So on that basis, it's actually an extraordinary level of compliance, given that life gets in the way of a lot of patients, whether you're on vacation, co-morbidity or stuck in a hospital for GI or blood transfusion, like any nurse not showing up for some reason. And we've been able to avoid most of that and be at a pretty high compliance level.

Yes. Yes. So 91% is actually really good. I guess in terms of pushes and pulls, there's that dynamic in terms of changing the dosing interval as patients respond to therapy. There's also a $900,000 cap built into the access piece, too. I guess assuming a patient is dosed every week which the majority of patients still are. What's sort of the most aggressive math to when this cap could be reached for patients on therapy?

Yes. So a few things to clarify. The cap only applies to patients reimbursed through the commercial side. It does not apply to Medicaid or government-paid patients. Cap is calculated on a calendar year basis. And even though the cap is calculated -- we calculate cap at a patient level, eventually the cap applies at a planned level. So if a plan had X number of patients, half of them beat the cap and half of them did not beat the cap, it would be more like a blended average as opposed to saying, hey, 5 people beat the cap. So it's a bit more tricky than simply patient cap. I think if a patient has to be on 38 vials in a calendar year to hit the cap. And so what we do at the beginning of the year is kind of figure out how many patients we have on commercial drug, how many do we expect in the next 3 to 4 months. Because beyond midyear, it's inconceivable that a new patient is going to beat the cap so we make an estimate and then we accrue for it over the 4 quarters. And every quarter, we kind of dynamically adjust that based on what we see. So there's no big spike up or down at the end of the year, we're hoping to kind of smooth out net revenues in that process.

Which might sort of naturally happen as patients have a 2-week dosing interval or something like -- yes...

Yes.

Okay. And on 1Q, I guess one of the dynamics we saw was that -- there was a J code transition impact of maybe 400 vials, I think you said. Do you see this as sort of being an isolated event? And how could having the formal J code now be a tailwind actually for the rest of the year?

Yes. I agree on both counts that it's a onetime event. We did not want to disrupt patients from being on drug, as you saw from the high compliance. So we had to jump in quickly and do the right thing, which is to substitute free vials while our specialty pharmacy was figuring out and getting reimbursed for the revised J code. I think it was the right thing to do, and I'm glad we did it. Going forward, the reason I say it's a tailwind is prior to the J code, there are a bunch of states, a handful of states that will not reimburse and mitigate patient without a formal -- without a permanent J code. And once we got that, most of those states are starting to reimburse, which is why when we reported access in 1Q, the number was as high as 96%, and [ rest of growth ] commercial or Medicaid. So long term, look, it's definitely a huge tailwind, but we were a bit surprised, but I think we did the right thing in 1Q by having the ability to keep the patient on drug on a continuous basis.

Yes. Great. And I think another dynamic that was mentioned on the 1Q call is reauthorization of patients on therapy. It sounds like of the patients that are up for reauthorization, there's been zero pushback to date from payers. Could you maybe walk us through this dynamic? And how frequently does the reauthorization need to happen for patients?

Yes, it happens every 6 months. And what payers typically need is notes from the clinician or clinical notes or physician notes, attesting, hey, the drug is working. So the physician usually has a conversation with the patient to get their experiences on the drug. And like you were saying, to date, we've had -- it's been going really well, like we've had no denials. However, I just want to point out, we just launched in August, so we've only had a small number of patients going through the reauthorization, but we don't expect anything to change. I'm merely pointing out. We haven't had that much experience to speak definitively about reauthorizations at this point.

Is the -- is there a read-through that if a patient were to be reauthorized once that it would be smoother the next time? Or is it really like -- depending on their case set up?

That is my expectation. If you step back, what we're finding is there are not that many patients per payer. So even the best -- I'm not saying that's across everybody, but -- so it's not -- unlike other indications like hemophilia A or other larger indications, it's not a big hit to the payer, given the small concentration of patients within a payer. And so if the reauthorization goes well, our expectation is that, that continues. We'll see.

Yes. Right. That makes sense. And you mentioned earlier on, you've got the EU approval potentially coming in the second half. Japan could be in the cards, too. I guess, how are you thinking about launches in ex-U.S. geographies? Is this something you try to do yourself? Or are there some -- maybe a handful of partners you'd be looking through to choose from to help support it?

We would like to self-launch in EU4, U.K. and Japan. We've always had that because it's a rare disease, it's a huge unmet medical need and doesn't require a huge sales force marketing infrastructure to launch in a country like Germany or France. It's still difficult, but like other rare disease launches can be done. So that's the path we're on for EU4, U.K. and Japan. We do enter into distributor-type relationships in, for example, Saudi Arabia, the Middle East, Eastern Europe, Israel, maybe someday Brazil. Some of the other countries, our expectation is not to partner with a big pharma, but slowly but surely, either self-launch or use distributor agreements to get the drug to the patient, with respect to B-VEC.

Yes, similar to the agreements that you have in the U.S. in terms of the at-home piece?

The EMA seems very aligned on giving us home dosing in Europe. We do not have an official word from the PMDA yet. I think it makes sense to have home dosing because, A, it's chronic patient convenience, drives compliance, like there's so many benefits of home dosing for the patient, for the payer, for the sponsor. And so we're hoping that we were able to get the EMA on our side with respect to home dosing, and we're hoping to do that with some of the other countries.

Okay. Okay. And I guess one more question on the B-VEC launch. A year in, right, the shape of the launch curve is still coming to form. I guess, is there a point where you'd feel comfortable to begin giving forward-looking revenue guidance? And how would you -- what would you need to see to step through that?

Look, I don't -- as a company, we guided on cash OpEx at the beginning of the year. We would like a little more experience. You saw Q1 was like a couple of onetime events. Would not have been a great quarter to guide, right, because we did not expect them to happen. We're kind of surprised. Our thinking is to at least let 2024 go by before we think about guiding on revenue. Once you kind of hit steady state, we have a good idea of how much of the 1,200 we have penetrated and then it's about finding new patients. And we can be more -- we can predict with a better accuracy of how the launch curve is going to stabilize. So that's how we're thinking about it.

Okay. You'll have the base of patients that are on the chronic therapy and then you'll have four full quarters to track seasonality...

Yes.. So hopefully.

Okay. That makes sense. And maybe one question just on gross margins. It's a pretty good business for you guys. Where should we expect this maybe settling over the next few years?